A. Vellayan says the board should not allow anything that will destroy value for shareholders

Chennai: A. Vellayan, chairman of EID Parry (India) Ltd and executive chairman of the Murugappa group, spoke in an interview about the board of the company and the group and what he seeks in a director. Edited excerpts:

What’s the broad philosophy that drives the board in the context of governance?

We have a corporate board (for the group) that has three external independent directors, three executive directors and two family members, this is the broad structure. Business has three verticals - agriculture, finance, engineering, each one of them has a mentor director. The mentor director is a member of the corporate board but also has the responsibility of that vertica - typically each vertical can have three or four companies. Each vertical has some common synergies. Three lead directors report to me - and then we have three external directors. It’s a fairly compact board. The point to note is that the family is in a minority on the board - two directors are from the family. Typically, the way the (EID Parry) board operates is not just meeting once a quarter for a three-hour board meeting. Board members spend 12 days a year with us - given a normal board structure, we can’t achieve much in just once-a-quarter board meeting. The independent board members bring in their own expertise. For instance, Sridar Iyengar, the previous chairman of KPMG, is based in the US. He has been on the boards of Infosys Ltd and ICICI apart from our board and brings international experience.

Deepak Satwalekar from HDFC comes from a pedigree of professional banking. Venkatraman Thyagarajan, the Asian head of GSK, has a marketing background. Twelve days are spent to evolve broad strategies on directional plan, risk assessment and growth plan. Subjects are earmarked and discussed. A couple of days spent on people assessment and couple of days spent on portfolio assessment besides a couple of days spent on growth plans.

Boards should be engaged in value creation. They should not allow anything which will destroy value for shareholders. Governance helps sustainability of performance in an organization.

Long tenures can affect the independence of independent directors. Besides this, the new companies Bill may prune the term of independent directors. What’s your perspective?

They are independent in our assessment. They are also independent in the sense they are rotated and move on after a six or nine-year stint. So they are not permanently on the board for 20 years. That also brings in some independence.� Independent directors like Sridar Iyengar, Deepak Satwalekar and Venkatraman Thyagarajan are operating on other boards where their style is being accepted. They are not people who will waste their time (on boards) if they are not given the freedom to operate.

How do you manage to preserve the culture and philosophy of your group over generations? How do you measure the efficacy of your efforts to do so?

We have values and beliefs represented by five lights - quality, integrity, passion, responsibility and respect. We try to ensure that the quality of anything we make in terms of a product or service is the best or measures up to the expectation of the customer. Each employee should display a level of integrity in terms of his work ethics and when dealing with employees or customers. People need passion to help companies grow and succeed. Responsibility - people should be accountable for what they are doing, be it factory or sales force levels. And finally, respect is crucial - whether it is a junior employee or customer or supplier. Today, there is a lot of emphasis on how easy it is to do business with the Murugappa group. We call it ‘easy to do business with us’ (ETDBW), while most companies track Ebidta (earnings before interest, depreciation, tax and amortization).

How do you ensure participation from all stakeholders, including employees?

Engagement levels vary at the highest end - 60-70% and bottom 30-40%, primarily driven by inspirational leadership at different levels and communication. We have a lot of communication on the web - I go live continually for interaction on the web (through the company intranet). I also travel to locations on Founder’s Day and talk to employees - we call it ‘energy hour’.

Would political and bureaucratic governance be among the biggest challenges?

Environment-wise, yes it would be clearly a challenge as for many of our products we operate across different states. I think, ultimately, in the long term, there is no option for the political leadership but to contemporize their thinking as literacy and educational levels rise.

How do you pick future executive leaders?

The person’s DNA should be in line with the organization’s value. For example, a very aggressive person would cut corners and do anything to grow at the same time. If a person is not passionate, then we don’t want him there as he will not be able to achieve our targets. A potential leader needs to have high energy levels. We have a succession plan and career development.

Culture, familiarity and group values are very important to you. Would this imply that you’re careful when scouting for leaders from outside the organization?

If the person (who comes from outside) may rock the boat, we will welcome it only if the boat needs rocking. However, if the boat is sailing smoothly in a particular direction, why disrupt it? If, for example, the business requires a lot of interaction with overseas partners and suppliers, an outgoing and versatile person will be an asset.

What is the key learning you have picked at the group that could serve as a learning for other companies and entrepreneurs?

It is our ability to share risks with professionals which keeps the adrenaline pumping. I can’t say that - You take the risk, if it goes right, we gain and if doesn’t go right, you (the professional) have made a mistake.